Houston General Ins Co v. St Paul Fire & Marine Ins Co

FILED
NOT FOR PUBLICATION
MAY 12 2016
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

HOUSTON GENERAL INSURANCE No. 13-35862
COMPANY,
D.C. No. 2:11-cv-02093-MJP
Plaintiff - Appellee,

v. MEMORANDUM*

FARMINGTON CASUALTY CO,

Defendant,

and

ST PAUL FIRE & MARINE
INSURANCE COMPANY,

Defendant - Appellant.

Appeal from the United States District Court
for the Western District of Washington
Marsha J. Pechman, Chief District Judge, Presiding

Argued and Submitted April 4, 2016
Seattle, Washington

Before: HAWKINS, RAWLINSON, and CALLAHAN, Circuit Judges.

*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
 St. Paul Fire and Marine Insurance Company (“St. Paul”) appeals the district

court’s entry of judgment in favor of Houston General Insurance Company

(“Houston”). We have jurisdiction under 28 U.S.C. § 1291. We largely affirm the

decisions of the district court, but intervening state law authority on the proper

interpretation of “collapse” in insurance policies like St. Paul’s require that we

vacate judgment and remand for a new trial.

1. We review conclusions of law and mixed questions of law and fact de

novo. Lim v. City of Long Beach, 217 F.3d 1050, 1054 (9th Cir. 2000). We review

findings of fact for clear error. Id.

2. St. Paul has not shown that Houston’s equitable contribution claim

was untimely. St. Paul has not cited any Washington authority directly addressing

whether an insurer’s action against another insurer for equitable contribution is

subject to the insured’s contractual policy limitations period. Absent such

controlling authority, we decline to disturb the district court’s ruling that, under

Washington law, the limitations period contained in the contract between St. Paul

and Lakewest did not time-bar Houston’s contribution claim against St. Paul.

3. The district court did not clearly err in finding that “Houston paid the

$6 million settlement amount to Lakewest based on Houston’s liability under the

Traders policies.” The settlement agreement characterizes the agreement as

2
resolving all claims “of whatever kind or nature . . . existing between Lakewest and

Tokio as a result of, on account of, or in anyway relating to the Lakewest

Condominium . . . or the Lawsuit . . . .” The district court was not required to

characterize the settlement as a litigation sanction.

4. The district court did not err in concluding that “Houston was not a

volunteer because it settled under legitimate threat of civil suit.” “An insurer who

acts as a volunteer in making payment on behalf of its insured will lose the right to

recover contribution from other insurers on the loss,” but “[o]ne who settles under

threat of civil suit is not a volunteer.” Hartford Ins. v. Ohio Cas. Ins. Co., 189 P.3d

195, 199–200 (Wash. App. 2008). Houston settled after Lakewest sued it. The

fact that the jury in this case subsequently credited Houston’s defense to coverage

does not transform Houston into a volunteer. See id. at 200.

5. We vacate the district court’s judgment based on the jury’s finding of

“collapse.” The district court instructed the jury based on then-existing

Washington case law that “collapse” meant “substantial impairment to structural

integrity.” After the district court entered judgment and after principal briefing

was completed on appeal, the Washington Supreme Court clarified the definition

of “collapse.” Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas.

3
Co., 352 P.3d 790, 791–92 (Wash. 2015) (en banc).1 The issue in Queen Anne was

whether all or part of a condominium had sufficiently “collapsed” to trigger

coverage under a property insurance policy similar to St. Paul’s policy here. Id. at

792. The court in Queen Anne held:

Here the insured requests that “collapse” be interpreted to mean
“substantial impairment of structural integrity.” We largely agree. Of
the definitions offered to us, substantial impairment of structural
integrity is both reasonable and the most favorable to the insured.
Based on the language of the Policy, however, we caution that
“collapse” must mean something more than mere “settling, cracking,
shrinking, bulging or expansion.” Also, we note that “structural
integrity” of a building means a building’s ability to remain upright
and “substantial impairment” means a severe impairment. Taken
together, “substantial impairment” of “structural integrity” means an
impairment so severe as to materially impair a building’s ability to
remain upright. Considering the Policy as a whole, we conclude that
“substantial impairment of structural integrity” means the substantial
impairment of the structural integrity of all or part of a building that
renders all or part of the building unfit for its function or unsafe and,
in this case, means more than mere settling, cracking,
shrinkage, bulging, or expansion.

Id. at 794 (footnote and record citation omitted). “Substantial impairment of

structural integrity” cannot be interpreted “so loosely as to convert an insurance

policy into a maintenance agreement by allowing recovery for damage which,

while substantial, does not threaten collapse.” Id. at 794 n.2 (quoting Ocean Winds

1
We apply the law in effect at the time we render our opinion. See
Henderson v. United States, 133 S. Ct. 1121, 1126 (2013). Neither party argues
otherwise.
4
Council of Co–Owners, Inc. v. Auto–Owner Ins. Co., 565 S.E.2d 306, 308 (S.C.

2002)).

The Washington Supreme Court’s intervening decision in Queen Anne has

rendered the jury’s instruction on “collapse” erroneous and the error was not

harmless. Houston’s evidence focused on the integrity of individual members, not

necessarily on the “material[] impair[ment] [of] a building’s ability to remain

upright.” See id. at 794. Moreover, the jury’s notes to the court during

deliberations indicated concern or confusion with the definition of collapse, i.e.,

whether collapse meant that one member or the entire building had to be

structurally impaired. We vacate the district court’s judgment and remand for a

new trial on “collapse” consistent with the definition of collapse provided in Queen

Anne. As noted by St. Paul, retrial is only necessary for the last three St. Paul

policies, in effect from October 1, 1997 through October 1, 2000.

6. Because we vacate the judgment on other grounds, we do not reach St.

Paul’s remaining arguments challenging the district court’s fashioning of remedies.

AFFIRMED IN PART, VACATED IN PART, REMANDED.

Each party to bear its own costs.

5